How Much Health-Care Spending Is Wasted? Lots.

Sept. 12 (Bloomberg) -- Last week, two important reports
underscored the potential for improving the value of health care
in the U.S.

The first of these, “Best Care at Lower Cost: The Path to
Continuously Learning Health Care in America,” issued by the
Institute of Medicine, highlights two crucial facts. The first
is that the health system provides a great volume of care that
doesn’t help patients. The authors write “there is evidence that
a substantial proportion of health care expenditures is wasted,
leading to little improvement in health or in the quality of
care. Estimates vary on waste and excess health care costs, but
they are large” -- possibly amounting to more than $750 billion
in a single year.

As the report notes, that is enough to pay the full
salaries of all the nation’s firefighters, police officers, and
emergency medical technicians for more than a decade.

Second, medicine is becoming so complex that it is
virtually impossible for an individual doctor to keep pace --
especially without help from computers, the institute says.
Consider that the number of medical journal articles has risen
to more than 750,000 a year, from 200,000 in 1970. “Diagnostic
and treatment options are expanding and changing at an
accelerating rate, placing new stresses on clinicians and
patients, as well as potentially impacting the effectiveness and
efficiency of care delivery,” the report concludes.

Computerized Medicine

This report reaches well beyond diagnosis, however. It
recommends sensible steps to move us toward a “continuously
learning” health system. One of these is to give doctors and
other providers expanded real-time access to the latest
knowledge through the widespread use of clinical-decision-support computer software, bolstered by continuously updated
data on clinical experience.

A second set of recommendations involves health-care
payment policies, which, as the institute argues, “strongly
influence how care is delivered.” The U.S. needs to move faster
away from paying providers a fee for each service and instead
pay for what they accomplish toward helping patients. The report
also calls on health-care leaders to promote and develop a
culture of learning among doctors, while also empowering
patients by giving them more information about their own medical
decisions.

The second important health-care report last week,
published in Health Affairs, is based on a comparison of health-care costs and quality among various regions. Although a vast
body of previous research has explored the wide variance within
Medicare -- and has shown that there is no apparent correlation
between cost and quality -- this analysis used data from the
private insurer UnitedHealth.

The private-insurance data also show tremendous variation.
For common chronic conditions, for example, the least-expensive
costs per medical episode (those at the 10th percentile of all
episodes) were about one fifth to one third less than the
median, while the most expensive costs per episode (at the 90th
percentile) were three to five times the median. In other words,
the highest costs are more than 10 times the lowest -- for
treating the same condition. The team also found significant
variation both within and across regions.

This variation might be understandable if the higher
spending bought better results. However, according to the
researchers, “for the conditions that we analyzed, we found
essentially no correlation between average costs and the
measured level of care quality across markets.”

The evidence thus suggests that in both Medicare and in
private-insurance markets, higher costs are not associated with
better quality. That underscores the opportunity identified by
the Institute of Medicine: By reducing the very high costs that
are not generating better quality, the U.S. could reduce total
spending without diminishing the quality of care people receive.

Quality Focus

Like the Institute of Medicine, the UnitedHealth team made
suggestions for how to capture that opportunity -- and the
recommendations from both groups are broadly consistent. The
UnitedHealth team argues that we need to continue to improve
quality measures; expand the use of shared data; move away from
fee-for-service payment (but in a manner that reflects
providers’ differing abilities to handle more risk immediately);
and modify the culture of medicine.

As I have said before, the next decade is crucial. The U.S.
can either move more aggressively to change the information that
providers have and boost their incentives to give better care,
or waste another decade and trillions more in excess health-care
costs.

(Peter Orszag is vice chairman of corporate and investment
banking at Citigroup Inc. and a former director of the Office of
Management and Budget in the Obama administration. The opinions
expressed are his own.)

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